Sunday, December 14, 2014

JNK and HYG High-Yield Junk Bond ETF's Weekly and Daily Charts Double 'M' Top

Keystone called the top in high-yield instruments this year and was using the SJB inverse ETF as a long play. SJB was exited on the Friday bounce and may be reentered. The negative divergence on the JNK weekly chart created the spank down off the double top, or 'M' top, in late August. The H&S pattern on the weekly with head at 40.7 and neckline at 39.3 targets 37.9 which is already achieved. The indicators remain weak and bleak (sans stochastics) wanting lower lows in price after any bounce. The stochastics are positively diverged which will help create a dead-cat bounce. There is very strong support at 37.5 and 37.0 for JNK.

The HYG daily chart is in a downtrend since summer time. Note the Tweezer Top in late October (purple circle). Also how the tight standard deviation bands squeezed-out the move lower (pink). The stochastics and money flow positive divergence will help to create a dead-cat bounce but the other indicators are clearly weak and bleak wanting to see lower lows as time moves along.

The drop in oil prices are crushing high-yield plays due to large exposure to the oil and energy companies. Worries increase over bankruptcies ahead as companies that leveraged too much debt are getting squeezed by the lower oil prices. Many will not be able to service their debt. Pundits say lower oil prices are a great thing with no downside. That is foolish. In a deflationary and low demand environment lower oil prices will be devastating. As plainly seen by the high-yield market above, negative financial contagion is occurring that can fester and accelerate creating far more market negativity than anyone expects. Further, Russia's economy is in collapse due to the falling oil prices and Europe is Russia's largest trading partner. Europe is already mired in recession and depression and if things worsen, that deflation and negativity will be exported to the US. All of a sudden, saving a ten-spot on a fill-up at the corner gas station does not appear that positive.

The charts above are sick but price will need to stabilize for both. The lower band is violated on the HYG daily chart (and JNK daily chart) so a move higher is in play. One thing to keep in mind, however, is that markets typically do not crash from overbot levels, they move down from the top and create concern, however, instead markets usually crash from oversold levels when they do crash. So as traders rush in to find a bottom, that is when their head may be handed to them on a platter. This information is for educational and entertainment purposes only. Do not invest based on anything you read or view here. Consult your financial advisor before making any investment decision.

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